Small Business Optimism Returning to Normal Levels as Owners Express Uncertainty about the Future

WASHINGTON, D.C. (Feb. 12, 2019) — The NFIB Small Business Optimism Index slipped 3.2 points in January, as owners continued hiring and investing, but expressed rising concern about future economic growth. The 101.2 reading, the lowest since the weeks leading up to the 2016 elections, remains well above the historical average of 98, but indicates uncertainty among small business owners due to the 35-day government shutdown and financial market instability. The NFIB Uncertainty Index rose seven points to 86, the fifth highest reading in the survey’s 45-year history.

“Business operations are still very strong, but small business owners’ expectations about the future are shaky,” said NFIB President and CEO Juanita D. Duggan. “One thing small businesses make clear to us is their dislike for uncertainty, and while they are continuing to create jobs and increase compensation at a frenetic pace, the political climate is affecting how they view the future.”

Key takeaways from the January Index were:

Hiring, hiring plans, and job openings remained strong.

Inventory spending and capital spending were solid.

Owners expressed concerns about future sales growth and business conditions later in the year.

There was some deterioration in conditions that would support business expansion.

“Although January’s index showed some positive developments among current business conditions, the return to divided government in Washington created an inability to agree on basic policy measures,” said NFIB Chief Economist Bill Dunkelberg. “This produced the longest partial government shutdown in history, elevating the level of uncertainty, which is damaging to economic activity.”

Small businesses added a net 0.33 workers per firm, the best reading since July 2018, with 15 percent of owners increasing employment an average of 3.1 workers per firm. Sixty percent reported capital outlays, just one point below December.

The net percent of owners reporting inventory increases rose four points to a net seven percent (seasonally adjusted), matching February 2018 and the strongest since April 2000. However, the net percent of owners viewing current inventory stocks as “too low” lost two points, historically a favorable reading but a little less comfortable than in 2018. The percent of owners planning to expand inventory stocks fell seven points from exceptionally high levels to one percent of owners.

A net four percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, unchanged, solid, but the lowest reading in a year. The net percent reporting higher sales averaged two percent in 2017 but eight percent in 2018, with a peak value of 15 percent. The net percent of owners expecting higher real sales volumes fell seven points to a net 16 percent of owners.

As reported in January’s NFIB Jobs Report, reports of higher worker compensation rose to the second highest level in the survey’s history to a net 36 percent of all firms. In 2018, nationwide wages increased 3.2 percent. Small business owners continue to hire at record levels, with 56 percent of owners reported hiring or trying to hire. However, 88 percent of those owners reported few or no qualified applicants for the positions.

Twenty-three percent of small business owners reported the availability of qualified labor as their top business problem compared to 15 percent citing taxes (up two points), 12 percent citing regulations and red tape, and two percent citing financing (down one point).

The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the 4th quarter of 1973 and monthly surveys since 1986. Survey respondents are drawn from a random sample of NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in January 2019. For more information about NFIB, please visit NFIB.com.